Shifting Tides: Exploring Antitrust Cases O’Bannon v. NCAA and Alston v. NCAA and Their Impact on College Athletics

September 21, 2023

In the realm of college athletics, two legal battles have sent shockwaves through the system, challenging the very foundations of the NCAA’s structure. The cases of O’Bannon v. NCAA and Alston v. NCAA have not only exposed the complexities of the collegiate sports landscape but have also ignited a broader conversation about antitrust regulations and the rights of student-athletes. As these legal sagas unfold, they intersect with the ongoing discussions in Congress about the future of collegiate sports. In this exploration, we delve into the intricacies of these pivotal cases and their implications, bridging the gap between the courtroom drama and the legislative efforts shaping the landscape of college athletics.

Antitrust and the NCAA

Antitrust refers to laws and regulations aimed at promoting competition and preventing anticompetitive practices in the marketplace. In the context of college sports and the NCAA, antitrust laws are applied to ensure fair competition and prevent monopolistic behavior that could harm consumers or participants.

In both the O’Bannon and Alston cases, the plaintiffs argued that the NCAA’s rules limiting compensation for student-athletes violated antitrust laws by restraining trade and suppressing the economic rights of athletes. These cases challenged the NCAA’s control over the financial benefits generated by college sports and raised questions about the fairness and legality of restricting compensation for student-athletes.

The outcomes of these cases signaled a shift in the way college athletes’ compensation and NIL rights are viewed and addressed within the legal framework. The rulings highlighted the need for reforms in the NCAA’s policies to align with evolving societal perspectives on amateurism and the economic rights of student-athletes.

O’Bannon v. NCAA Case

The O’Bannon v. NCAA case was a landmark legal battle that revolved around the use of college athletes’ names, images, and likenesses (NIL) by the NCAA and its member institutions. Former UCLA basketball player Ed O’Bannon led the class-action lawsuit against the NCAA, alleging that the organization violated antitrust laws by preventing college athletes from profiting from the commercial use of their NIL. The plaintiffs argued that the NCAA’s rules prohibiting compensation for student-athletes’ NIL in video games, broadcasts, and merchandise amounted to an illegal restraint on trade.

The case gained significant attention as it challenged the traditional amateurism model of college sports and questioned whether student-athletes should have the right to share in the revenues generated by their participation. In 2014, U.S. District Judge Claudia Wilken ruled in favor of the plaintiffs, stating that the NCAA’s rules were anticompetitive and that it violated antitrust laws by prohibiting student-athletes from receiving compensation for their NIL. The decision paved the way for changes in how college athletes’ NIL could be used and compensated.

Alston v. NCAA Case

The Alston v. NCAA case also centered around the NCAA’s rules regarding compensation for college athletes. In this case, the plaintiffs argued that the NCAA’s restrictions on education-related benefits, such as scholarships for graduate or vocational school, violated antitrust laws. The case was named after the lead plaintiff, former West Virginia football player Shawne Alston.

The plaintiffs contended that the NCAA’s limitations on education-related benefits were anticompetitive and deprived student-athletes of fair compensation for their contributions to college sports. In 2020, the U.S. Supreme Court ruled unanimously in favor of the plaintiffs, upholding the lower court’s decision that the NCAA’s rules restricting education-related benefits were in violation of antitrust laws. The ruling affirmed that the NCAA could not place unreasonable limits on non-cash benefits that student-athletes could receive related to their education.

The court rulings established that NCAA rules have anticompetitive effects, as they undervalue student-athletes. The District Court in the Alston case concluded that the NCAA’s justifications based on amateurism were insufficient. Proposed alternatives, like removing compensation limits or only limiting education-related benefits, were partially accepted by the court. A potentially successful alternative proposal could involve allowing some limits on revenue sharing from broadcasts while ensuring fair value for student-athletes’ NIL rights.

Senator Cruz Bill- What Does it Say?

Sen. Ted Cruz has introduced a legislative proposal that would grant the NCAA the authority to establish national Name, Image, and Likeness (NIL) policies. These policies would enable college athletes to profit from their celebrity status, allowing them to engage in NIL activities. The proposal is significant because it grants the NCAA the power to set these policies at a national level. This move aims to create a unified framework for NIL rights across the country.

Crucially, Cruz’s proposal also explicitly establishes that college players are not employees of their respective institutions. This declaration directly addresses the ongoing debate about whether college athletes should be considered employees and, as such, entitled to compensation and broader labor rights. By categorically stating that college players are not employees, the proposal could potentially incite disagreement among athlete advocates and policymakers who support greater financial compensation and labor rights for athletes.

The proposal includes provisions that prohibit universities, conferences, and athletic associations from restricting the NIL rights of student-athletes. However, these restrictions can be imposed if a student-athlete’s NIL agreement conflicts with or violates a university’s student code of conduct. This ensures that student-athletes have the freedom to engage in NIL activities unless their agreements violate institutional rules.

To ensure clarity and fairness, the proposal introduces the concept of a standard form contract for NIL agreements. Such contracts must be in writing and include key terms while bearing the signatures of all parties involved for validity. This standardization aims to protect the interests of student-athletes and maintain transparency in NIL agreements.

The proposal also modifies the Sports Agent Responsibility Act. It requires third parties, such as sports agents, to safeguard student-athletes’ interests. This includes disclosing their registration status with an athletic association and obtaining written consent from the student-athlete or their parents if they are not registered. These changes aim to enhance the oversight of sports agents and protect student-athletes from potential exploitation.

Athletic associations and conferences retain the authority to enforce recruiting, transfer, and eligibility rules. This ensures that the regulatory framework governing college sports remains intact while NIL rights are expanded.

The proposal allows athletic associations to create a public database that utilizes anonymized NIL data from institutions. This database helps student-athletes and third parties determine the fair market value of NIL services. It promotes transparency and fairness in NIL compensation.

Institutions, conferences, and athletic associations that fully comply with the Act are provided a safe harbor from legal liability. This provision encourages adherence to the established regulations and fosters compliance.

The proposal preempts state and local laws that conflict with the Act. It also covers laws that govern or regulate the compensation, employment status, and eligibility of student-athletes, including any provisions related to the commercial use of NIL. This preemption ensures a consistent nationwide framework for NIL rights.

However, while Sen. Ted Cruz’s proposed legislation addresses certain aspects of Name, Image, and Likeness (NIL) rights for student-athletes, it has raised concerns among athlete advocates for several reasons:

  •  Lack of Empowerment for Student-Athletes:  One of the key concerns is that Cruz’s bill could be seen as limiting the power and rights of student-athletes. By granting the NCAA the authority to set national NIL policies, it centralizes decision-making in the hands of the organization, potentially diminishing the influence and autonomy of individual athletes. Student-athletes may have less say in determining the rules and regulations that directly affect their NIL opportunities.
  •  Employee Status and Compensation: The bill categorically states that college players are not employees. While this has implications for labor rights and compensation, it may disappoint those who believe that student-athletes should be entitled to financial compensation for their contributions to college sports. It effectively maintains the status quo, where athletes do not receive salaries or benefits beyond scholarships.
  • Lack of Comprehensive Reform: Some critics argue that Cruz’s bill may not go far enough in addressing the broader issues of student-athlete rights. While it touches on NIL rights, it does not comprehensively address concerns related to athlete compensation, health and safety, and broader labor rights. This could leave many issues unaddressed, particularly as the college sports landscape continues to evolve.
  • Potential for Unequal Treatment: There is a concern that centralized NIL policies set by the NCAA may not account for the unique circumstances and opportunities of individual athletes or specific sports. A one-size-fits-all approach could lead to unequal treatment and limited NIL opportunities for some student-athletes.
  • Impact on Athlete Advocacy: Athlete advocates have been pushing for greater rights and financial compensation for student-athletes. Cruz’s bill, which is supported by the NCAA, could be seen as a setback for the broader athlete advocacy movement. It might make it more challenging for athletes to push for further reforms in the future.
  • Exemption from Antitrust Suits: Certainly, the aspect of antitrust exemptions in Sen. Ted Cruz’s proposed legislation is of significant concern to many advocates of student-athlete rights. This provision is a point of contention because antitrust laws play a crucial role in ensuring competition and preventing monopolistic practices.

As Mit Winter, college sports Attorney at Kennyhertz Perry, remarked on X (formerly Twitter), “it’s very NCAA friendly, so very athlete unfriendly”. Below is a more detailed explanation of why this provision is seen as problematic.

Implications of Antitrust Exemptions:

1. Limitation of Legal Recourse: Antitrust laws empower individuals, including student-athletes, to challenge actions or rules that may be deemed anti-competitive or in violation of fair competition principles. Exempting the NCAA from certain antitrust suits could limit the legal avenues available to student-athletes when they believe their rights or opportunities have been unfairly restricted.

2. Reduced Accountability: Antitrust lawsuits have historically been a means for athletes to challenge NCAA rules that they view as restraining their earning potential or limiting their rights. Granting the NCAA an antitrust exemption could reduce the organization’s accountability and diminish the incentive to ensure fair and equitable treatment of student-athletes.

3. Impact on Future Reforms: The threat of antitrust litigation has often prompted the NCAA to reconsider and amend its rules. The exemption in Cruz’s bill could reduce the pressure on the NCAA to adapt and evolve its policies to better serve the interests of student-athletes. This, in turn, might impede future reforms in college sports.

4. Unequal Bargaining Power: Antitrust laws help level the playing field between institutions and individual athletes. Exempting the NCAA from antitrust suits could tip the balance of bargaining power heavily in favor of the organization and its member institutions, potentially leaving student-athletes with less influence over their own rights and compensation.

5. Potential for Monopoly-Like Behavior: Antitrust laws are designed to prevent organizations from engaging in anti-competitive practices that could lead to monopoly-like behavior. Granting the NCAA an antitrust exemption might reduce the checks and balances that prevent such behavior, potentially affecting the competitiveness and fairness of college sports.

In summary, the antitrust exemption provision in the Cruz bill raises concerns about the potential consequences for student-athlete rights, legal recourse, and the competitive landscape of college sports. Critics argue that this provision could limit the ability of student-athletes to challenge NCAA rules and actions that they perceive as unfair or anti-competitive.

While Sen. Ted Cruz’s proposed legislation addresses some aspects of NIL rights for student-athletes, it has sparked concerns about the potential limitations it places on athlete empowerment, its stance on employee status and compensation, and the implications of granting the NCAA exemption from antitrust suits. A more comprehensive and athlete-centric approach may be necessary to fully address the evolving landscape of college sports and the rights of student-athletes.

House vs NCAA- why is it relevant to antitrust?

In the ongoing legal saga of House v. NCAA, the recent class certification hearing in Oakland, California, has taken a notable turn, potentially reshaping the future of collegiate athletics. Lead plaintiff Grant House, a former Arizona State swimmer, along with his co-plaintiffs, is championing the cause of over 14,500 college athletes. Their aim is to secure back pay for the rights to their NIL dating back to 2016, an issue the NCAA officially addressed only in 2021. Moreover, they argue that college athletes continue to be deprived of a share of the revenue generated from television contracts and video games, a concept they refer to as broadcast NIL (BNIL).

Judge Wilken has presided over significant class action lawsuits in the past, including the O’Bannon and Alston cases I mentioned previously. In the House case, the NCAA’s argument that NIL is too individualized to be litigated on a class action basis faced scrutiny. The defendants suggested that the plaintiffs’ proposed calculation for BNIL implied that college athletes could earn up to $400,000 if they remained in college for four years, potentially deterring some from pursuing professional careers. Judge Wilken challenged this stance, emphasizing the complexity of separating hypothetical scenarios from factual reality.

The NCAA also contended that paying damages would violate Title IX, as more funds would flow to male athletes than their female counterparts. However, Grant House’s legal team countered by highlighting that the disparity in television revenue distribution is structurally ingrained and not a matter of athlete compensation.

The discussion pivoted to the comparison between college and professional athletes, with the defendants asserting that college athletes shouldn’t receive additional compensation for BNIL, as professional athletes are not remunerated separately for this aspect. Judge Wilken aptly pointed out that professional athletes receive salaries that inherently encompass broadcasting elements.

In contrast, House’s legal team emphasized the viability of class action certification, particularly in scenarios involving group licensing opportunities, such as video games and collectibles, where all players benefit equally. This alignment with typical experiences among class members strengthens the case for class action certification.

Plaintiffs’ Demands

The legal basis for the plaintiffs’ claims rests on the Sherman Antitrust Act. They argue that the NCAA has engaged in conspiratorial behavior to limit their ability to earn income from their NIL rights. The plaintiffs propose three separate classes: one for football and men’s basketball, one for women’s basketball, and another encompassing all other sports. In total, the plaintiffs are seeking over $1.4 billion in damages, with $1.3 billion designated for male student-athletes and $50 million for female student-athletes.

To address potential Title IX concerns raised by the NCAA, the plaintiffs assert that Title IX does not apply to college athletic conferences, allowing conferences to distribute revenue among players rather than schools.

NCAA’s Defense

The NCAA’s primary argument revolves around opposing class certification, contending that there are significant disparities in athletes’ NIL worth. These disparities relate to factors such as individual and team performance, as well as market demand. The NCAA further seeks to dismiss a report from media consultant Ed Desser, who asserted that an athlete’s use of NIL is equivalent to 10% of the broadcast revenue generated by each conference through TV contracts. A follow-up report by University of San Francisco sports management professor Dan Rascher supported this claim by proposing that each conference allocate this portion of revenue to its football and basketball players.

The NCAA countered by arguing that such a distribution would result in 96% of the allocation going to male athletes and only 4% to female athletes, potentially violating Title IX rules. Judge Wilken, however, seemed less persuaded by this part of the NCAA’s argument.

The NCAA also contended that certifying the damage class would be impractical, as it is impossible to identify all the affected student-athletes and determine when an athlete who chose to remain in school might have occupied a roster spot that would have gone to someone else.

Class Certification

The certification of the injunctive class marks a significant development. This class certification essentially means that a group of student-athletes has been officially recognized by the court as having common interests and a common cause for seeking injunctive relief against the NCAA. In this case, the injunctive relief likely pertains to issues related to NIL rights, where student-athletes are fighting for the ability to profit from their own image and likeness without facing restrictions imposed by the NCAA.

The fact that the NCAA didn’t oppose the plaintiffs’ motion to certify this class indicates that both parties might see some merit in pursuing this injunctive relief, or they might be looking for a resolution to this aspect of the case. This certification sets the stage for the court to consider the injunctive relief sought by the student-athletes as a collective group.

However, the case is far from over. The next crucial step is awaiting Judge Wilken’s written decision on whether the three proposed damages classes should be certified. These damages classes would likely involve claims related to compensation that student-athletes believe they are entitled to but have been restricted from earning due to NCAA rules.

Judge Wilken’s decision will be pivotal, as it will determine whether the case can proceed with these damages classes. If she certifies these classes, it signifies that the court recognizes the validity of the student-athletes’ claims related to damages. This would further intensify the legal battle between the student-athletes and the NCAA.

The NCAA could face substantial financial damages, potentially exceeding $4 billion in backpay to thousands of former student-athletes. Furthermore, even if the lawsuit doesn’t reach its final stages, it has already brought substantial attention to the issue of student-athlete compensation and the NCAA’s restrictions on NIL activities.

Grant House and his co-plaintiffs are leading a charge that seeks not only to secure back pay for the long-denied rights of college athletes but also to challenge the NCAA’s hold on the name, image, and likeness (NIL) of its student-athletes. In essence, this lawsuit represents a significant challenge to the NCAA’s longstanding practices and regulations regarding the compensation and rights of student-athletes. It parallels the broader antitrust discussions surrounding the NCAA, as both cases force a reevaluation of the long-standing status quo. Whether through the antitrust lens or the House case, the future of college athletics appears destined for profound transformation, with the athletes themselves at the center of a redefined paradigm.

The trial is scheduled for January 2025, but Judge Wilken has raised the possibility of moving the trial date, indicating the significance and complexity of the case.